Australia: Bank in Crisis as Shares Collapse

June 15th, 2008

Via: The Age:

ONE of Australia’s biggest investment banks, Babcock & Brown, is in crisis after a collapse of investor confidence that sent its share price plummeting more than a third in two days.

The sell-off sent shockwaves across an already jittery sharemarket, and has raised fresh questions about the long-term viability of the business model created by Babcock’s giant rival, Macquarie Bank, which has also been punished by investors.

With more than $72 billion of assets under management and carrying debt of $46 billion, Babcock & Brown has modelled itself on Macquarie, the company often known as the “millionaires’ factory” due to massive financial rewards enjoyed by its executives during the past decade or so.

Like Macquarie, Babcock has been a big investor in real estate, electricity and other infrastructure assets around the world.

The crisis of confidence in Babcock, and to a lesser degree Macquarie, spread across the broader market yesterday, with more than $35 billion wiped off the value of listed companies as the S&P/ASX 200 index fell 2.5%.

Mark Potter of Baker Young Stockbrokers said investors were punishing heavily indebted companies like Babcock after the financial collapse of others such as Allco Finance Group.

“We’re obviously in times where things haven’t been as difficult as this in credit markets for 20 or 30 years and so the assessment of the likes of Babcock & Brown at the moment is much different to what it was even 12 months ago,” he said.

Twenty-five banks providing $2.8 billion in finance to Babcock will meet on Monday to decide whether to demand a review of the company’s position after its market value fell by $850 million yesterday to $2.3 billion.

Babcock chief executive Phil Green attempted to calm investors’ nerves last night, saying lenders were “more focused on fundamentals than the daily share price movements”.

Posted in Economy | Top Of Page

2 Responses to “Australia: Bank in Crisis as Shares Collapse”

  1. traderjohn says:
    June 16, 2008 at 2:10 am

    How to trade this situation –

    this chart seems to show that gold is near the bottom of a nine month cycle –

    http://stockcharts.com/h-sc/ui?s=$GOLD&p=W&yr=3&mn=0&dy=0&id=p24836867931

  2. traderjohn says:
    June 16, 2008 at 1:16 pm

    oops – I do not know how the dollar sign got lost, but when you go to that chart prefix the symbol, $gold instead of gold.

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